From The Wsj: "the Coming Crunch" (in Emerging Markets)

[Hairy]

The full article is well worth reading, but here are some excerpts:

http://online.wsj.com/article/SB1226270978....html#printMode

The Coming Crunch

By DAVID ROCHE

From today's Wall Street Journal Asia

The global credit crunch has now hit emerging economies, including those in Asia, which many had hoped or expected to be able to "decouple" from developed economies. There will be no escape, and even worse, the super typhoon that is now battering emerging markets will in turn deepen the global recession.

The global credit contraction will affect emerging markets in several ways. First, their exports and imports (of raw materials) will fall as excess demand is eliminated in the over-leveraged rich economies of Europe and North America. There will also be a reduction in capital flows to developing economies in all forms (credit, portfolio investment and foreign direct investment) as a result of deleveraging. At the same time, household and corporate wealth will be destroyed as a result of falling liquidity supply from both domestic and foreign sources. Those emerging economies with large foreign-currency bank loans and liabilities face debt deflation, while many corporations in Asia will find it difficult to grow because they are unable to roll over their excessive foreign loans and bonds.

Many emerging-market current accounts will turn from surplus to deficit, private capital inflows will drop precipitously and residents will run down their assets and take their capital out. So these economies will have a huge external financing problem next year. Their foreign exchange reserves will fall sharply along with their currencies and financial assets.

...

But now excess credit is being removed. While this is happening, demand in rich economies will fall and savings rates will rise. So developing-world factory economies will see export demand cave in and this will cut their own demand for inputs. It has already fed through into lower commodity and oil prices.

...

Emerging-market central banks were accumulating so many dollars they didn't know what to do with them. If they sold them, the falling dollar could wipe out the value of their existing dollar holdings. So they sent their excess dollars back to Uncle Sam, where they generated even more credit expansion.

But now, as exports fall and inflows of liquidity dry up, the emerging markets' net external financing requirement -- the sum of their current account balance, net FDI and annual net debt repayment -- will rocket. From being awash with surplus liquidity, many emerging markets will be parched of it, particularly emerging Europe, Latin America and central Asia.

...

Moreover, there are many more deficit-ridden emerging markets that won't be helped. In Asia, they include Indonesia, the Philippines and Vietnam. Globally the big and the ugly who lie outside the "defensive layer" established by the IMF, Fed and European Central Bank include Russia and Argentina. As they get hit, those that are being helped will be re-infected in turn.

The ebbing tide of global liquidity will test the perceived virtues of emerging markets. In reality, the above-average growth rates depended on an unsustainable credit cycle elsewhere that was amplified at home. The huge accumulation of foreign-exchange reserves was just an appendix of excess global liquidity. Budget arithmetic and external accounts were beneficiaries of the same phenomena.

[BEENTHEREDONETHAT]

Interesting article Hairy. The future looks very questionable, could go several ways, none of them good.

Recession

Depression

Inflation

Deflation

Hyperinflation

Take you pick. did I miss any?

[neil324]

Interesting article Hairy. The future looks very questionable, could go several ways, none of them good.

Recession

Depression

Inflation

Deflation

Hyperinflation

Take you pick. did I miss any?

Maybe going to see all of them, in their efforts to avoid the coming deflationary recession they will then take us into a hyperinflationary depression.

[Hairy]

Interesting article Hairy. The future looks very questionable, could go several ways, none of them good.

Recession

Depression

Inflation

Deflation

Hyperinflation

Take you pick. did I miss any?

Maybe going to see all of them, in their efforts to avoid the coming deflationary recession they will then take us into a hyperinflationary depression.

Yep, that's what I've been saying too.

IMHO that was the whole point of Bernanke's rate cuts -- to drive the dollar down against other currencies, thereby promoting high inflation due to the spike in commodity prices.

Right now we get the giant sucking sound as other economies start to sag and the dollar dips. In the not too distant future, Obama's spend-spend-spend policies (drive up that federal debt!) will trigger dollar devaluation against other currencies, thus driving up commodity prices again.

In some other thread (I think the "GM Needs Money" one), someone posted a forecast that the USD-EUR rate would be around 1.25 for the next year (maybe less), then head back up into the 1.45 range. I'm not a professional, I'm not even an amateur, but that's what I expect, too. As Bernanke and whoever replaces Paulson kick the printing presses into overdrive, the USD will plummet again.

If Volcker is the replacement, then maybe not -- he at least used to have the backbone to stand up to political meddling. But he must be over 80 by now, and doddering old men are a lot easier to push around than even the somewhat elderly 60-year-olds.

I'm looking toward Switzerland and Australia for financial stability. Anyone know how to open a Swiss bank account? The only thing I've found is some bunch of bastards who want $1000 to "introduce" you to a bank that will let foreigners open one. Apparently, it's legal, and CAN be done without such nonsense, but I can't find out which banks do.

[phaethon]

Recession

Depression

Inflation

Deflation

Hyperinflation

Take you pick. did I miss any?

Conquest

War

Famine

Death

Pestilence

Annihilation

Armageddon

Cataclysm

Catastrophe

Decimation

Devastation

End of the World

Holocaust

Shoah

...

Gary Glitter Come-back Tour

[glyph]

"Recession

Depression

Inflation

Deflation

Hyperinflation

Take you pick. did I miss any?"

You certianly did! According to several learned members of this forum, Thailand will be subjected to stagflation, and "disinflation".

[BEENTHEREDONETHAT]

OK, OK nobodys perfect.

[PeaceBlondie]

This sentence about decreasing raw commodity prices caught my eye: "It has already fed through into lower commodity and oil prices." Ar barrel of crude oil is half of what it was earlier this year. What about rice, steel, chrome, corn, etc.?

[Kf6vci]

there was an article on Bloomberg.com about many smaller importers not being able to obtain CLs, Letters of Credit. They want to import wood etc. but no can do unless a bank is guaranteeing payment to the shipping companies at the harbor in Chicago or wherever. Chinese and Indian companies are affected.

Thai rice and other exporters won't ship unless they get a CL either.

Good article - the hurting will be global.

Lat time I arrived at Suvarnabhumi, never before could i just walk up to the immigration counter without queuing first. A sign? Let's wait for the peak season tourist numbers!

[MJP]

This sentence about decreasing raw commodity prices caught my eye: "It has already fed through into lower commodity and oil prices." Ar barrel of crude oil is half of what it was earlier this year. What about rice, steel, chrome, corn, etc.?

Copper has been decimated. As have steel prices. Soft commodities also down.

[cclub75]

I'm looking toward Switzerland and Australia for financial stability. Anyone know how to open a Swiss bank account?

That could be a BIG mistake.

The Austrian and Italian banks that dominate Hungary’s banking sector, along with Hungary’s biggest domestic banks, made loans denominated in low-interest Swiss francs the primary method of financing consumer and mortgage debt in Hungary. Since 2006, nearly 90 percent of all mortgages have been denominated in Swiss francs. On Oct. 15, Austrian banking giants Raiffeisen and Volksbank restricted foreign currency lending. MKB Bank (the Hungarian arm of Germany’s Bayerische Landesbank) followed suit, and on Oct. 29 so did CIB Bank, the Hungarian subsidiary of Italy’s Intesa. Swiss franc loans account for approximately 40 percent of both the total mortgage and total consumer debt market.

The fear in Europe is that with the possible collapse of the Hungarian forint — which is down more than 17 percent since the start of October — loans denominated in foreign currency such as Swiss francs and the euro will become unserviceable for Hungarian customers.

http://www.stratfor.com/analysis/20081029_...just_first_fall

We have to understand that the traditionally "virtuous" people (germand and swiss) have messed up, like the others !

Look at the losses of UBS. Look at the losses of the german banks ! They were champion to play with american CDOs and other toxic financial products.

That's the problem : over the last few years.... EVERYBODY played with fire, even the respectable banks and financial institutions, even the most virtuous...

[midas]

does anyone have any opinion how effective this will be on alleviating some of the pain................ ?

taken from the BBC web page today

Stocks surge after China stimulus

Asian markets have risen sharply, a day after China announced a huge investment plan to kick-start its slowing economy.

About $586bn (£370bn) is to go into housing, infrastructure and post-earthquake reconstruction in China over the next two years.

Correspondents say the package is a response to falling growth and exports.

There will also be significant cuts in company tax, while banks will be allowed to lend more to projects involving rural development and technical innovation.

The government also promised a shift to a "moderately easy" monetary policy.

"The investment expansion should be done swiftly and forcefully," a State Council meeting chaired by Premier Wen Jiabao concluded.

"It's a huge package," Dominique Strauss-Kahn, managing director of the International Monetary Fund, was quoted as saying by the Reuters news agency after a meeting of the Group of 20 finance officials in Sao Paulo, Brazil.

"It will have an influence not only on the world economy in supporting demand but also a lot of influence on the Chinese economy itself, and I think it is good news for correcting imbalances."

Companies likely to benefit most from the government's investment plans did best, including banking, steel and construction firms.

Factory closures across the border in southern China have badly depressed China's manufacturing sector.

Commodity cuts?

Analysts said the stimulus package would not save China from the effects of the global financial slowdown, but could help to protect it.

China, and Asian economies who increasingly depend on it as an export market, had become used to double-digit growth figures.

The Chinese government has cut interest rates twice in recent weeks, and began considering ways to avert a more dramatic economic slowdown in October.

[neil324]

there was an article on Bloomberg.com about many smaller importers not being able to obtain CLs, Letters of Credit. They want to import wood etc. but no can do unless a bank is guaranteeing payment to the shipping companies at the harbor in Chicago or wherever. Chinese and Indian companies are affected.

Thai rice and other exporters won't ship unless they get a CL either.

Good article - the hurting will be global.

Lat time I arrived at Suvarnabhumi, never before could i just walk up to the immigration counter without queuing first. A sign? Let's wait for the peak season tourist numbers!

Wow a positive to come out of the global downturn, no more queues at the airport

[LaoPo]

does anyone have any opinion how effective this will be on alleviating some of the pain................ ?

taken from the BBC web page today

Stocks surge after China stimulus

Asian markets have risen sharply, a day after China announced a huge investment plan to kick-start its slowing economy.

About $586bn (£370bn) is to go into housing, infrastructure and post-earthquake reconstruction in China over the next two years.

Your question was already discussed, here:

http://www.thaivisa.com/forum/Global-Corre...12#entry2322212

I think it will help but it will not completely avoid the declining exports and growth.

China, as well as the rest of the world, will feel a lot of economic pain in the next 18 to 24 months, possibly longer.

It remains to be seen which one will be worse off....Joe the Plumber and his European/OZ/NZ counterpart or Mr. Ping Pong.

Ping Pong, cultural wise, saved 35% (sometimes even more) of his earnings, year-in-year-out and has a little buffer so to speak, to survive. Every single Chinese family SAVES money. It's in their genes and culture. Chinese are not big spenders.

The average Joe-the-Plumber does not have savings, he has just debts, whether it be his mortgage, his financed car, -television set, -computer, -kitchen, -furniture...or his Credit Card debts......he is in financial bad shape.

But, the positive message is that in 3 years from now, everyone will be positive again

LaoPo

[cclub75]

Ping Pong, cultural wise, saved 35% (sometimes even more) of his earnings, year-in-year-out and has a little buffer so to speak, to survive. Every single Chinese family SAVES money. It's in their genes and culture. Chinese are not big spenders.

The % is certainly impressive... but the amount is peanuts (or ping pong balls if i may say)... because income are very low.

And this secular behaviour... is certainly changing. In the cities for instance.

Plus the fog of war... I'm wondering how we can believe any chinese statistics ?

I mean : China announces a growth of 8 to 9 % in 2009... and at the same time a "stimulus package" of 586 billions USD...

2 solutions :

-those 586 billions are just a dream of chinese dictators, like "steel production" was the dream of Mao (by millions tons) and the Soviet.

-the 8 to 9 % is... just a dream of chinese "planners", exactly like Mao and the Soviets were doing.

[LaoPo]

Ping Pong, cultural wise, saved 35% (sometimes even more) of his earnings, year-in-year-out and has a little buffer so to speak, to survive. Every single Chinese family SAVES money. It's in their genes and culture. Chinese are not big spenders.

The % is certainly impressive... but the amount is peanuts (or ping pong balls if i may say)... because income are very low.

And this secular behaviour... is certainly changing. In the cities for instance.

Plus the fog of war... I'm wondering how we can believe any chinese statistics ?

I mean : China announces a growth of 8 to 9 % in 2009... and at the same time a "stimulus package" of 586 billions USD...

2 solutions :

-those 586 billions are just a dream of chinese dictators, like "steel production" was the dream of Mao (by millions tons) and the Soviet.

-the 8 to 9 % is... just a dream of chinese "planners", exactly like Mao and the Soviets were doing.

The amount is not important versus it's western counterpart as the living costs are also dramatically lower. The average Chinese still doesn't have car to take care for and food is a lot cheaper than in the west.

The point is that they SAVED money for bad times which is unheard of in the west....think of that.

The stimulus package is needed because the Chinese government sees the declining growth of the economy and growth is of the utmost importance. It is very easy to criticize any country or it's government but nobody but the Chinese themselves have to keep a country running with 1,3 Billion people.

Easy to criticize...difficult to run and therefore your "2 solutions" do not make sense.

When was the last time you were in China ?

LaoPo